This article will answer the following questions:

• What are the rules for taxing donations? 
• Does the taxpayer also have to pay tax on a revoked donation? 

Sometimes tax offices apply a pro-fiscal approach in an uncompromising and aggressive manner. An example of this is the story of a taxpayer who fought with the tax office over a donation she received, but which was then revoked. How did the legal battle with officials who maintained that a tax liability had arisen in this situation end?

Rules for taxation of cash donations

Let us remind you: in the case of cash donations, tax liability rests with the recipient. Whether they pay tax depends on the amount of the donation and the relationship they have with the donor. 

The Inheritance and Gift Tax Act distinguishes three tax groups: 

• Tax group I – which includes members of the closest family. In the case of this group, the threshold when the donation becomes subject to taxation is PLN 36,120 (although it is also possible to obtain a complete exemption from taxation of a cash donation); 
• Tax group II – which includes more distant relatives. In the case of this group, the threshold when the donation becomes subject to taxation is PLN 27,090;
• Tax group III – which includes all other recipients. They must pay tax when the value of the donation from one person exceeds PLN 5,733. 

The gift tax rate (and the method of calculating it) also depends on the degree of kinship between the donee and the donor. A gift is taxed according to a scale, with the level of taxation depending on the value of the gift. The most favorable rates are provided by the legislator for taxpayers who are closely related to the donor. 

If the donation is made by an unrelated person, the donee must pay tax at the rate of 20% on the excess over PLN 20,556. 

The rates are therefore high, and the tax authorities – as the case described below shows – interpret the regulations in a way that is extremely unfavourable to taxpayers. 

Tax on revoked donation – the approach of tax office 

The case at the heart of this article concerns a taxpayer taking care for an elderly person to whom she is not related in any way. This person, having received compensation in connection with the so-called reprivatisation, decided to repay the taxpayer for the care and share the amount obtained with her.

As a result, the taxpayer received a donation in the amount of PLN 1,200,000. After receiving it, she declared it to the tax office, which resulted in a tax liability under inheritance and gift tax, in the amount exceeding PLN 200,000. Unfortunately, due to an unfortunate coincidence, the donation was revoked. It turned out that the compensation received from the city in connection with reprivatisation should be returned. Informed of this, the taxpayer gave the amount of the previously received donation back to the elderly person from whom she had received it. In order to avoid having to pay the previously calculated tax, she reported the revocation of the donation to the tax office, attaching a written explanation and a printout of the transfer documenting the return of the entire amount constituting the received compensation to the city office account.

However, the officials considered that receiving a donation gives rise to a tax liability. And they interpreted the regulations based on an approach that can be colloquially called "end of story".

According to the capital city tax office, the fact that in this case the gift had to be returned does not in any way eliminate the need to pay tax. The officials completely failed to notice that, by following their approach, the taxpayer would have to pay tax on funds that she did not actually have, because she received them only for a moment and had to return them after a short time for reasons beyond her control.

Revoked donation and the need to pay tax – the court's position

Fortunately for the taxpayer, both the Provincial Administrative Court in Warsaw (judgment of 6 April 2023, file reference number III SA/Wa 1989/22) and the Supreme Administrative Court (judgment of 7 August 2024, file reference number III FSK 1148/23) sided with her.

The courts ruled that a situation in which the donee had to pay tax on the amount that did not constitute an increase in her assets would be contrary to the ratio legis of the Act on Inheritance and Gift Tax and would violate the constitutional principles of a democratic state of law and proportionality. According to the courts, adopting the linguistic interpretation in the disputed case and charging tax despite the lack of a definitive increase in assets on the part of the taxpayer would not only be clearly unjust, but also similar in its effects to partial confiscation of the assets.

The story described is an example of how absurd and unfriendly to taxpayers the manner in which the tax office employees interpret the regulations can be, and how difficult it would be to find a panacea for this if independent courts did not function in the Polish legal system. Once again, we receive proof that it is always worth fighting for your rights - especially when such large amounts are at stake.